This piece first appeared in Asia Times in April.
President Donald Trump’s
order to deny ZTE access to essential American made electronic components for
telecommunication equipment and mobile phones will for sure stymie ZTE. Just as
surely the move will lead to a tit for tat response from China.
One obvious reaction is for
China to stop supplying rare earth compounds to the US. Rare earth components are
essential for all kinds of high tech applications including electronic warfare.
While a dominant world supplier, China is not the only source and therefore the
retaliation would not be as dire for the US as for ZTE.
However, as the confrontation
raises the ante, unintended consequences will inevitably follow. Being
“unintended,” of course, means not all outcomes can be anticipated.
One can reasonably expect
China to intensify its effort to develop its own semiconductor technology and
become totally independent of American devices and components.
It would be a mistake for US
policy makers to assume that China’s technical and scientific development will
always rely on inputs from America.
China developed its own
atomic bomb in the mid ‘60s and was followed by the hydrogen bomb in quick
order, a rate of progression more rapid than any other members of the nuclear
club including the US.
In that era, China was very
much isolated from the West including the Soviet Union and the only western influence
came from the PhD graduates trained in the West and returned to China to lead
the weapon development.
In the ‘90s, China began a
concerted effort to grow its internal semiconductor technology. A major part of
the strategy was to enter into a joint venture with a foreign semiconductor
company. NEC was the partner that signed on.
This effort largely failed
because bureaucrats with no technical training were put in charge of China’s
effort. These leaders did not understand that one couldn’t leap to the latest
and greatest without learning to walk and grasp the technical fundamentals in as
complex a field as semiconductors. They pressed until the partnership broke
down.
The situation is vastly
different now. There are many more returnees that are seasoned technologists
having worked at senior levels in the West. They are already engaged in
developing basic technologies and devices that would free Chinese products from
the US strangle hold.
The latest trade war development
will add pressure and incentives for them to succeed.
Hard to know when China will
have their own competitive technology but they surely will. They are fully
aware that licensed technology or even purloined technology will only get them to
a level behind the West.
By way of confirmation, China
has already broken through in many technical fields based on their own
development. Examples include mobile phone and applications, facial recognition
using artificial intelligence, robotics in manufacturing, advances in drone design
and so on.
With the world’s largest
domestic market to test and verify their advances, the day will come when China
will announce their own proprietary chipsets and licensing terms, confident of
their competitive advantages relative to American sources.
China’s appetite for
semiconductor devices that goes into all kinds of electronics far exceeds the
US. The competition developed to serve this hunger will be formidable and American
makers may rue that day sooner than expected.
Another possible unintended
consequence is the rumor that Hainan Island may be permitted to develop casinos
on the “Hawaii” of China.
A major blow in the trade war
would be for China to allow Hainan to become a destination with gambling and
divert visitors that would otherwise be visiting Macau—most of the visitors to
Macau are from inside China.
Whether Hainan becomes a
competing tourist attraction or not, Beijing can always put the squeeze on the
American casinos operators in Macau, specifically MGM, Wynn and Las Vegas
Sands.
The hurt on LVS would be
particularly painful since slightly more than 60% of the New York listed
company revenue comes from Macau. So far since early this year, Macau has been
doing nicely, but I wouldn’t want to make book on the future.
LVS
is majority owned by Sheldon Adelson and his family. Thirty plus billions of
dollars of his net worth is tied to his holding in LVS. As one of Trump’s
principal supporters, it’s undoubtedly a good time for Mr. Adelson to have a
private conversation with the president.
He
could be wholly above board and speak for the greater good of both countries to
counsel President Trump that anti China action will only have short-term effect
and won’t stop China’s rise. The president should be thinking of the benefits
of long-term collaboration as opposed to inflicting mutual losses in the near
term.
The author was a former
member of the board of Las Vegas Sands from 2008 to 2014.
